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Brexit slowdown is awful economic timing. A deal won’t help

by Vicky Pryce | 08.03.2019

Vicky Pryce is an economist and commentator and former joint head of the UK Government Economic Service.

Leaving the EU at the end of this month, or even in late June if votes in the Commons next week bring a short extension to the Article 50 deadline, is probably the worst timing for the UK economy.

The world is slowing down and all forecasters including the IMF have lowered their expectations for this year and next. The Brexiters’ idea of a “Global Britain” selling to rapidly growing markets after Brexit, free from EU restrictions, could not be further from what is actually likely to happen.

In fact, problems have begun already. Trade disputes are already hitting overall business confidence in the developed world and in Europe in particular, which remains the main destination for UK exports. Italy is in recession, Germany has narrowly escaped it and the European Central Bank has just announced a restart of monetary expansion to assist the floundering economic growth of the region.

At the same time signs that Brexit uncertainty is causing a slowdown in the UK are multiplying. Business investment fell in each quarter in 2018 and the Bank of England expects it to fall by a further 2.75% this year. Business optimism is at its lowest since 2016 and manufacturing output fell on many months last year and in December was some 2.1% below where it had been a year earlier. There are signs of stagnation in both manufacturing and services, with worries about export orders for goods in particular.

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Consumer confidence has been slipping despite a continued growth on employment and a final pickup in real wages. Consumers are scaling back their purchases in an attempt to reduce accumulated debt. They are also concerned about uncertainty as job losses in some sectors like retail are multiplying. Foreign firms producing here are getting worried and are announcing closures, such as Honda in Swindon, or cancelling investments, such as Nissan in Sunderland. This will have serious implications for local growth and employment. The number of insolvencies has soared.

So will there be a “Brexit dividend” if a deal goes through? The chancellor, who has seen an increase in his revenues as employment and hence income tax has stayed higher than earlier forecasts, has some money to spare and is optimistic. We will hear more next week in his spring statement.

But he is a minority. The OBR is likely to revise its own forecasts of 1.6% growth this year sharply downwards as others have done already. The OECD has just slashed UK growth expectations to only 0.8% for this year – and that’s on the assumption of a smooth exit and stand-still transition period which buys us time to work out our future relationship with the EU.

One reason for these negative forecasts even if a Brexit deal is agreed is that stockpiling for no-deal chaos, encouraged by the government, will be reversed and economic activity will fall as a result. But the uncertainty over final arrangements with the EU and other countries will remain discouraging investment.

No-deal preparations, for example the leaked plans to slash tariffs on imports from large chunks of the economy, has revealed how fragile many sectors are to the vagaries of life outside the EU. Would you as a firm convince your shareholders to invest here as uncertainty drags on, as it will under any Brexit scenario? For most, the answer is “with difficulty”.

Edited by Luke Lythgoe

9 Responses to “Brexit slowdown is awful economic timing. A deal won’t help”

  • Everything about the Leave argument is destructive and negative. Leavers focus on what they think is wrong about the EU, allied to vacuus statements about winning the war and making Britain ‘great’ again. Some of them do not even realise that the word ‘great’ in ‘Great Britain’ refers to size and not status. They are intent on blowing the house down without the faintest idea about what to replace it with. It is easy to criticise- much harder to be constructive and creative.

    A guy on Question Time (Winchester edition) was allowed to say unchallenged: ‘We’ll refuse to pay the EU the 39 billion,; they’ll soon give us what we want then’. If the UK did this, however, it would actually be breaking the law and its International reputation would be totally wrecked. How can you reason with people such as this guy? Suella Braverman MP was on the panel, a hardline leaver and member of the ERG. She is a lawyer with a degree in European Law from the Sorbonne. She must have known this comment from the guy in the audience was totally wrong and inaccurate but, of course. said nothing. We are being deceived in so many different ways. This does not reflect well on ‘democracy’.

    Brexit is about the ERG which contains MPs who hate rules and regulations that stop them cashing in. They are backed by similar people who are not MPs such as A. Banks and Tim (the bloke who runs Weatherspoon’s). Channel 4 News has revealed a lot of the murky dealings of Mr Banks and he broke the financial rules. But, seemingly, this is OK. ‘Labour Leave’ (Kate Hoey and Co) came out of the Channel 4 investigation very badly also.

    Brexit is a national disaster and we have to keep trying to stop it. Mrs May’s ‘democracy’ argument cuts no ice with me, particularly when democracy was manipulated and trashed by the Leave side. I don’t think we know the half of it. I am fast disowning the country of my birth.

  • I watched the Channel 4 News feature last night on Aaron Banks. Labour Leave are also a disgrace for their association with Banks. When you listen to the skullduggery that he was involved in the to fix the result by foul means, or fouler means, there is enough reason to reason to cancel the result and withdraw Article 50 until an honestly run referendum can be run.
    An honest PM would have come to this conclusion already and the Leader of the opposition as well would be calling for it in the light of such a marginal vote.
    If we do have a 2nd Referendum we have to have some ground rules which exclude proven liars from the campaign. So no place for Banks, Gisela or BoJo.

  • Peter,
    Specifically, the people you quote, which lies till they tell in the EU Referendum? Tony Blair, I admit, has serious questions to answer about the Iraq War, but about the EU before the Referendum, or after it, I don’t see it. Banks and Bojo are in a league of their own. Watch the Channel 4 reports on Banks in this past week and you will see how Democracy was subverted. You could always say why it doesn’t matter but that would make really interesting reading.

  • So proven liars are not to be excluded if they believe in staying in the EU? Surely if they are believed to be proven liars then surely they cannot be trusted to campaign in another referendum.
    How about all those politicians that voted for article 50????

  • Peter,
    I have absolutely no problem seeing the people you mentioned excluded from a future referendum, my only point was that their past crimes bore no influence on the EU Referendum. The same cannot be said for Banks and his ‘Bad Boys of Brexit’ (which says a lot). Your silence in their defence speaks volumes.
    OK, MPS agreed to Article 50. That was against the hype that a Deal with the EU would be easy, our trade deals could just roll over, and other unicorn promises. Now that its clear to everyone except the most die-hard brexiteers that this was all nonsense, in a democracy people should be allowed to review their decision, both MPs and the public. If Theresa May can change her mind from being able to talk reasonable sense before the Referendum as is evidenced by her speech to the Institute of Mechanical Engineers, to spouting the mindless statements of ‘Brexit means Brexit’, a few months later, I am sure the rest of have the same right.

  • Let’s get real on this subject. Regardless if you believe someone is a liar (proven or not) then they are perfectly entitled to express a view in a referendum. Obviously if they are believed to be less than sincere then their opinions may be somewhat tarnished.
    No Tony, what you actually want is to ban anybody from having views aired that differ from yours.
    Nice chap that Mr Banks!!

  • Peter,
    Not really. My problem is when the overwhelming amount of time is given to liars, even though their reputations are tarnished. Boris was sacked from a newpaper for dishonesty, obviously suffers from amnesia about what he said about Turkey, his £350 million pound per week claptrap on the side of the bus, but continues to have celebrity status. Banks is under criminal investigation. I know very well that since you have the result you want you are happy, but there are plenty of people who now realize that they were lied to and regret their decision. That’s not to mention the 2 million new young voters and will have to actually live with the consequences of the result for far longer than you or I. From my understanding you are unhappy for them to have the right to change their minds whilst accepting they were lied to, or exercise their democratic right at all . I don’t see a possible defence for such an opinion. Try telling someone in any other area of life they were lied in an agreement and yet are bound by a decision they made on that basis. It would be thrown out in any legal case.
    You are probably aware if the Referendum had been binding it would now be ruled an unsafe result, in the light of the low margin. The only reason it continues, bizarrely, is that is was only advisory.